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東京大学ものづくり経営研究センター Manufacturing Management Research Center (MMRC)

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No. 453

Flexible Supply Capability Driving Total Inventory Reduction:

An Analysis of Omron Healthcare

Mizuki Kobayashi

Graduate School of Economics, the University of Tokyo

Junjiro Shintaku

Faculty of Economics, Manufacturing Management Research Center,

The University of Tokyo

Daiki Kato

January 2014

Flexible Supply Capability Driving Total Inventory Reduction: An Analysis of

Omron Healthcare

Mizuki KOBAYASHI

Junjiro SHINTAKU

Daiki KATO

Abstract

This study analyzes the total inventory from multiple perspectives, meaning from the

perspectives of each party involved from upstream to downstream, and investigates how to

reduce the total inventory based on a case study of Omron Healthcare. We conduct the

analysis of its supplier, production and sales departments and distributor.

In conclusion, we clarify that companies need successful supply chain integration in

order to achieve reduction of the total inventory. Requisites for such integration include goal

sharing among parties and mix-up of the production systems based on a high level of

production capability. Most importantly, we suggest that the flexibility of the supply

capability of upstream influences the activities (i.e. order policy) in downstream.

Keywords reduction of total inventory, flexibility of the supply capability, supply chain

integration, goal sharing

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Flexible Supply Capability Driving Total

Inventory Reduction:

An Analysis of Omron Healthcare

Mizuki KOBAYASHI

Graduate School of Economics, The University of Tokyo

Junjiro SHINTAKU

Faculty of Economics, Manufacturing Management Research

Center, The University of Tokyo

Daiki KATO

2

Abstract

This study analyzes the total inventory from multiple perspectives, meaning from the

perspectives of each party involved from upstream to downstream, and investigates

how to reduce the total inventory based on a case study of Omron Healthcare. We

conduct the analysis of its supplier, production and sales departments and distributor.

In conclusion, we clarify that companies need successful supply chain integration in

order to achieve reduction of the total inventory. Requisites for such integration

include goal sharing among parties and mix-up of the production systems based on a

high level of production capability. Most importantly, we suggest that the flexibility

of the supply capability of upstream influences the activities (i.e. order policy) in

downstream.

Keywords reduction of total inventory, flexibility of the supply capability, supply chain integration, goal

sharing

1. Introduction

Firms are still facing a critical problem in inventory reduction nowadays. They

want to reduce inventory but do not want to lose customers because of inventory shortage.

Previous researches point out that effective supply chain management can alleviate managers

concern. However, while the final consumer’s demand rate stays steady, the demand orders

become variable as they move to upstream in supply chain, a phenomenon called the Bullwhip

Effect (Lee, Padmanabhan & Whang, 1997). The main causes of the Bullwhip Effect have

been identified as demand forecast updating and mistrust among parties (i.e. sales and

production departments).

The empirical studies in the field have examined information sharing or IT tools

implementation would facilitate the interdepartmental cooperation, and therefore reduce the

inventory and contribute to the firm’s performance (Lee & Billington, 1992; Kahn1996; Stank,

Daugherty, & Ellinger, 1999a; Ellinger Daugherty, & Keller, 2000; Frohlich & Westbrook,

2001; Vereecke & Muylle, 2006; Croson & Donouhue, 2006; Akiike & Park, 2013).

However, most studies have not realized the fundamental issues, such as where precisely the

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excessive inventory exists and how to reduce the inventory over all? The excessive

inventory may happen only at distributor (dealer)’s site, but not at production site. That is to

say, a crucial piece missing from the previous studies is the focus on the reduction of total

inventory, which can be attained via observation from upstream of component suppliers to

downstream of retailers. The purpose of our study is to investigate how to reduce the total

inventory by utilizing multi-stage observation.

In this paper, we first provide the theoretical background and point out the necessity

of a case study. Then, we introduce the research design and the case. Finally, the last part

of this paper is the result and discussion.

2. Research on the Integration of Supply Chain

According to the extant literatures, SCM is defined as 1. the process which manages

a series product information flow from upstream (raw materials purchasing) to downstream

(distributor); 2. progress in the integration through information sharing among departments

and organizations; 3. dealing with total cost reduction and meeting high level of

products/service requirement at the same time (Simchi-Levi, Kaminsky, & Simchi-Levi, 2000;

Frohlich & Westbrook, 2001; Rosenzweig, Roth, & Dean, 2003).

There is a considerable amount of theoretical and empirical support for the assertion that

effective supply chain is important for inventory reduction, a smooth information flow and a

firm’s financial performance. Many scholars have focused on logistics department’s effort

(Morash, Droge, & Vickery, 1996), arguing that informal routes for information sharing

contribute to the performance more than the formal routes (Stank, Daugherty, & Ellinger,

1999a; Ellinger Daugherty, & Keller, 2000).

Moreover, inter-firm activity attracts scholars’ interests. Frohlich & Westbrook

(2001) suggests that suppliers and distributors’ cooperation contributes the most to the firm

performance, and strong business relationship either with the suppliers or the distributors is

not the best policy. Kim (2006) states that only for large firms do supply chain integration

have effective impact on their competitiveness based on Frohlich & Westbrook (2001)’s

assertion. Gimenez & Ventura (2005) prove that integration with retailers contributes to the

customer service enhancement as much as interdepartmental collaboration does. There are

considerable studies have focused on automobile industry, which have been more likely

influenced by Toyota’s collaboration with its suppliers (Vereecke & Mulle, 2006). They have

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carefully considered the cooperative relationships and emphasized “frequent, closer

communication” and “long-term relationship” with the suppliers for Toyota’s success.

Toyota Production System (TPS) along with the close supplier relationship has

significant effect on inventory reduction and short lead time. Holweg & Pil (2004) pointed

out that Make-to-Stock (MTS) manufacturing system has remained in many automobile firms

nowadays. But compared with other famous automobile firms, Toyota’s pull system by

downstream parties or customer was more effective to meet various customer needs in 21st

century and avoid overproduction. They stated most researches emphasized TPS’s effect

between Toyota and the suppliers, not as the whole system across the firm. According to

Tomino, Park, Hong & Roh (2009), we have to notice that TPS does not absolutely depend on

the pull system. Toyota actually mixes the stable Make-to-Stock (MTS) production plan

(push system) and Make-to-Order (MTO) manufacturing (pull system) together to meet

flexible market needs. Toyota makes annual/monthly/ten-day production plan based on its

own forecasting and sales information from the dealers. The models sold inside of Japan

allow some minor changes basically in the section of ten-day production plan, such as color

change and minor interior change can be done in a few days. Based on MTS, Toyota well

integrates changing demand information to the production plan and cooperates with its

suppliers. Another point we have to notice is that automobile industry’s distribution channel

is different from those of other industries. Car dealer is basically the key channel to sell the

cars and collect customer information. In electronics or consumer goods industry, the

wholesalers, distributors and retail shops exist between manufacturing firm and customers.

In some ways, automobile firms have an easier access to directly get customer’s information.

Therefore, inventory reduction in other industries may be more complex than in automobile

industry because of information variability.

In summary, previous empirical studies inform us that “information sharing” among

departments and firms has been the center of the discussion. They examined a wide range of

factor signification to firm performance and supply chain integration, such as “information

sharing frequency” or “presence of shared database” or “utilization level of information

sharing network”. They do tell us the universal but partial fact: “information sharing is

important”. A big pitfall is that extent researches tend to focus on inventory problem at

production site, such as helping upstream parties better prepare for viabilities in inventory

demand downstream (Croson & Donouhue, 2006). However, they often lack focus on the

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total inventory reduction, that is to say, multi-stage observation for the total inventory

reduction is needed. A case study here will help us obtain a useful insight into the issue.

3. Omron Healthcare Case Study

3.1 Research Methodology

As a reference from the existing work, we identify two processes by which we

observe cooperation among all parties inside/outside the firm: “Collaboration”, which means

qualitative or substantive activity, and “Interaction”, means quantitative or structural form or

system (Kahn, 1996; Vereecke & Muylle,2006; Akiike & Park, 2013). We cite the

definitions from Kahn (1996) as they are close to our thought.

Collaboration is defined as “an affective, volitional, mutual/shared process where

two or more departments work together, have mutual understanding, have a common vision,

share resources, and achieve collective goals.” Interaction represents the activities formally

coordinated among the parties, including “routine meetings, planned teleconferencing, routine

conference calls, memoranda, and the flow of standard documentation.” Kahn (1996) drops

a hint that early collaboration (sharing common goal and promoting mutual understanding)

contributes more to the effective supply chain integration.

3.2 Why Omron Healthcare?

Omron Healthcare Co., Ltd. is one of the major healthcare equipment and machine firms in

the world. Corporate/individual customers are familiar with its products, such as blood

pressure monitors, digital thermometers, body composition monitors, pedometers, and electric

toothbrushes. Omron Healthcare employs 4,492 workers, of which 3,689 are overseas, earns

62.4 billion Yen in revenue (as of 2012), and runs eight domestic offices, twelve overseas

offices, one R&D center in the headquarter, and three production sites in Matsuzaka of Japan,

Dalian of China and Binh Duong of Vietnam.

Omron Healthcare has been working on its own production activities that are based

on the Toyota Production System (TPS) for over twenty years. Although its effort on

production and collaboration with the suppliers has been achieved the improvements of

productivity and flexibility and reduced production lead time, it still faced the serious problem

related to inventory shortage and excessive inventory by products. To solve this problem,

Omron Healthcare made a new attempt which was called Make-to-Availability (MTA) system

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from 2010. The cooperation involved all the parties concerned, such as sales departments,

suppliers, and distributors, and enabled Omron Healthcare to have remarkable achievement on

inventory management in two years. The reason we choose Omron Healthcare is that we can

deeply observe what it did and how it did to reduce the total inventory before/after the change.

3.3 Research Procedure

This research is mainly based on several fieldworks and interviews with people in charge of

production department, sales department, and the supplier. Secondary data and prior research

are used to the analysis as well. Fieldwork detail is described as below.

The first-round interview was in August, 2012. The authors visited Omron

Healthcare Dalian, China production site and its first-tier supplier A. We have conducted

five-hour interview with the president, two Japanese employees from the management team,

one local staff from Omron Healthcare, and three consultants from Consulting company B

which helped Omron Healthcare implement MTA and daily operation. In supplier A, we

were able to interview two Japanese expatriates and four local managers for an hour.

The second-round interview was about three hours in September, 2012. We went to

Omron Healthcare’s Tokyo Office and interviewed two persons in charge of sales department

about cooperation with the production sites and the distributors.

Other than the two interviews above, we also visited a consultant from Consulting

company B, who was previously working in Omron Healthcare for several times. Formal

and informal interviews were total in five hours. We also used emails and face-to-face

meeting to ensure the content’s objectivity and appropriateness.

3.4 Omron Healthcare Production History

Omron Healthcare implemented an innovative production system called ONPS

(Omron New Production System) in Matsuzaka factory (Japan) in 1982. ONPS is basically

the same production concept as TPS. Kanban system is utilized for implementing the pull-

production. ONPS contributed the drastic reduction of inventory in process and increase of

inventory turnover rate. Main production site was moved from Japan to China after their

Dalian factory (China) was started in 1993. The reform of supply chain in Dalian was started

in 2005.

Two phases of reform activities in Dalian are observed. As illustrated in Figure. 1, in the

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first phases for production reform, Omron Healthcare focused on the production capability

building and the cooperation with the supplier. In the second phase, Omron Healthcare paid

much attention on a wider range of cooperation, which involved more departments and parties

to make information flow traveling through them.

Figure. 1 Omron Healthcare production history

(1) Introduction of DNPS from 2005 to 2010

As production activities in Dalian factory were increasingly important to Omron

Healthcare, it brought ONPS to Dalian in 2005 and rename the system DNPS (Dalian New

Production System). DNPS actually performed remarkably on inventory reduction and

productivity improvement. For example, the pump1 inventory was reduced from 30,000 in

2003 to 2000 in 2007. Production planning cycle was shortened from monthly to weekly.

However, sales person of Omron Healthcare were required to forecast the demand 15 weeks

before production week. They can change their order volume till 5 weeks before production

in the limited range. Production plan was based on the forecast of sales department.

Flexible production capability was built to respond not to market demand but to sales forecast.

In 2010, the inventory level at the sales warehouse in Japan was still unstable. The

inventory temporarily fell down and went up soon without noticed. Some products were

1 One of the parts for blood pressure monitors, which is to feed air into arm band.

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even short of inventory although the factory worked very hard on manufacturing them. One

of the main causes of the problem was that the irregular bulk orders disturbed regular

production plan.

The production site also knew nothing about sales department’s policy and plans,

except basic order information such as order items and their numbers. Besides, production

site and sales site did not dare to try to share detailed information together. It means

production site’s effort only contributed the local optimization (good impact only inside of

production site), and went along with sales site’s order information that mix up with regular

order and bulk order. The firm needed all parties involved to work together in order to solve

the companywide inventory problem.

(2) MTA from 2010

To solve the problem, Omron Healthcare started working on a new initiative called

Make to Availability (MTA) in 2010. MTA is based on Theory of Constraints (TOC)

advocated by Goldratt, which is to focus on removing the bottleneck and improving the

companywide product information flow in order to link the activities to profit. We will

explain the detail of MTA at later section of this paper. On this occasion, each

department/party shall not focus on optimizing its own department/party but instead shall

consider how to generate a smooth flow of information for the entire firm.

In the following, we describe how Omron Healthcare made every department, suppliers and

distributors work together from “collaboration” and “interaction” perspectives (Kahn, 1996).

3.5 Interdepartmental Integration

Collaboration within the firm

Omron Healthcare recognized it was important that all involved department

managers understand the system in order to make the new system work. In March, 2010,

six-day workshop was held for sharing the common goal by all members. All managers

from production, logistics, product development and sales departments were gathered. They

were required full commitment to the workshop during the six days. Consulting company B

explained their TOC’s concept and the importance of total optimization instead of sum of local

optimization. Before this workshop, DNPS was perceived as the system not for total

inventory control but for the inventory control at production site. Sales department did not

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utilize DNPS for the control of their distribution inventory.

Other than learning the new system, managers also did in-depth discussion on what would

be the problems after system implementation. Managers shared their own situation and

subjects, and truly deepened mutual understanding for the first time. At the workshop,

involving the sales team was especially important because all customer information and order

information came from the salespersons. Sales site tended to pass the orders to production

side with more amount than the one of actual demand because it did not want to have

inventory shortage and fail to response to its customer (i.e. distributor). Moreover their

fluctuation of production volume was amplified since sales site has passed the order

information that mixed up with regular order and bulk order for special campaign. That

fluctuation brought the inventory shortage problem at production side. Therefore, sales site

could not completely trust production site and kept to order more than the actual demand to

prevent opportunity loss until this workshop.

Based on this background, the workshop provided each department with an opportunity to

clear away each party’s mistrust and misunderstanding and make actual demand information is

shared well. If sales manager could not fully understand the whole concept, the way the

members of the firm pass information would not be any different from the past. At the end of

the workshop, Omron Healthcare decided to give MTA a shot and started the implementation

around August, 2010, a trial on five kinds of products and aimed to integrate management

between production department and sales department. Now it implements the MTA with 170

items.

Interaction within the firm

According to Omron Healthcare, MTA is a production system that links shipping

inventory at sales site and market demand. It replenishes sales stock according to

downstream demand information (source from the market or distributor or sales site). MTA

means that they manufacture in order to guarantee availability of their products for distributors.

Basement for production planning was changed from the order from sales department to the

sales shipping inventory. Sales persons basically do not need to order to production

department based on their sales forecast.

We would like to clarify the difference among MTA, MTS, and MTO. MTO is a

manufacturing system which takes place only after a customer’s order is received. On the

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other hand, MTS is a manufacturing system based on demand forecast. Since it will prevent

opportunity loss and minimize excess inventory, the issue is how to forecast demands as

accurately as possible. In order to have an accurate forecast, it is also important to predict

the future demand based on the demand fluctuation cycle of the past.

MTA is a type of MTS because the system is based on demand forecast. However, Omron

Healthcare distinguish MTA from MTS. MTA is the system based on the forecast by

customers (distributors) while MTO is the system based on the forecast by their sale persons.

Information from customers transmits directly to the production department through sales

department.

Dynamic Buffer Management (DBM)

DBM is an important inventory management method to support MTA. DBM

visualize which item should be given the priority of production and how volume should be

manufactured. First, it calculates the maximum amount of inventory for each item as a buffer

to cope with demand fluctuation. The initial maximum amount of inventory is defined as the

maximum demand during supply lead time. Supply lead time is the sum of order lead time,

production lead time and delivery lead time. The maximum demand is basically the past

maximum sales at the time when the product was the best seller in the item. Then, item’s

inventory is divided to three zones: green, yellow and red. The supply priority is

dynamically adjusted by an easy rule. Red zone means the inventory is ready to short. Those

products in red zone should be manufactured as first priority. Yellow zone is the ideal level of

inventory and those products should be manufactures as second priority. Green zone means

quite sufficient inventory, and the supply is not in a hurry at that time. Present inventory is the

sum of the inventory amount in shipping warehouse in Japan, the amount on transportation,

the amount in warehouse in Dalian and the amount in manufacturing process in Dalian factory.

The amount of supply to be manufactured is subtraction of the present inventory from the

maximum inventory.

Also, the maximum amount of inventory is dynamically changeable to a proper

inventory level according to the recent sales trend of the each item. The maximum amount of

inventory is increased by one-third of the original amount if the items inventory level

stagnated in red zone for a while. This situation occurred when sales of these items were

increasing. On the contrary, the maximum amount of inventory is decreased by one-third of

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the original amount if the items inventory level stagnated in green zone for a while. This

situation means that sales of these items are decreasing or these items are approaching to the

end of life.

For the regular order, salesmen do not need to make an order, and people on production side

do not need to work hard on controlling the inventory level anymore. Information system

help two departments share information of inventory amount, products/parts location and

factories’ circumstances at any time. All actual information is visualized on the information

system and shared between production and sales departments.

Make-to Order (MTO) and Make-to Stock (MTS)

Production site treats the bulk order from sales site as a special order, and makes

another production plans (MTO and MTS) separately from the MTA which deals with the

regular order. People in charge of production attend the formal meeting in sales department

and information sharing becomes denser than before. Production site wanted the sales site to

pass the bulk order information as early as possible because it has been hard to response to all

the huge volume order in a short notice. Sales site wanted to know the accurate delivery time

in order to response to the customers as soon as possible. With close collaboration and

interaction between two departments, production site is able to know information about big

changes in production volume in advance. Production site adopts MTO to respond to the

bulk order. The bulk orders can be operated in MTA if the amount of orders is allowed by

the MTA standard. Additionally, production site adopts MTS as for the new products. It is

necessary to prepare enough inventories before the introduction of new product to the market.

The amounts of those advance inventories are set according to the sales and promotion plans

by sales department. Production people understand actual sales are often below those plans

or forecasts since no one knows whether it is going to be a blockbuster or not.

In 2012 summer, the inventory in the warehouse located in Osaka is reduced about

30% to 40% compared to it before the implementation of MTA. The inventory in Dalian

factory is reduced about 40%, which is thought as a big figure in Omron Healthcare. The

inventory problem has not completely disappeared after MTA implementation, yet monthly

meetings and other communications between two departments enable actual demand

information of regular order and sales policy (bulk order for campaign and the new product

debut) to be visible for each department.

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3.6 Inter-firm Integration

Collaboration with the Supplier

Omron Healthcare held a meeting with people from 140 suppliers when trying to

implement MTA to the first-tier suppliers2. Omron Healthcare earned suppliers’ cooperation by

reaching a consensus to build a win-win relationship together, and not to force Omron

Healthcare’s own thought on the suppliers.

For example, plastic parts supplier A in Dalian with 471 employees agreed to

implement MTA in 2011 summer. Before running the MTA, supplier A’s plastic parts and

electronic parts were facing a serious inventory shortage, in which the shortage ratio was

81.7% in total. At the kick-off meeting, Omron Healthcare and supplier A exchanged their

own opinions and concerns about the new system and made a common goal to meet market

demand, therefore, the smooth information flow must be carried between two firms as well as

among departments within.

Interaction with the Supplier

Supplier A utilizes DBM for the regular order as well and shares the parts inventory

information with Omron Healthcare Dalian factory every day. The production plan in

supplier A puts red-zone parts to top manufacturing priority, which is based on its own

inventory information and Omron Healthcare Dalian’s parts inventory information. To

ensure that the supplier fully acquires the concept of TOC, Omron Healthcare Dalian factory

send one employee to help. The supplier also cooperates closely with Omron Healthcare and

gives the status report meeting on weekends, which sum up to a total ten days from 2012 May

to August. What is more, the supplier also receives shipping status from Omron Healthcare

warehouse in Japan.

As for the response to bulk order such as campaign or new product debut, Supplier A

agrees to keep certain amount of the inventory, while Omron Healthcare Dalian factory gives

the responsibility to take over those parts inventory. Nine months after starting MTA,

supplier A successfully reduced its plastic parts inventory to three-day amount, comparably

smaller than the one-week amount at the very beginning.

2 Although not all suppliers agreed to accept the new system.

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Collaboration with the distributor

In Japan, products of Omron Healthcare are first delivered to the distributor, and

from there the products go to three kinds of retailers. The first type is the large electronics

stores (such as Yodobashi Camera in Japan). Half of the products are sold at this kind of

stores. The second type is the drug stores that constitute 30% of the total. The last 20% of

the products go to the channel called non-store or special channel. The customer for this type

of channel is the corporations that do not hold stores such as TV shopping companies and

health insurance associations.

People in charge of sales in Omron Healthcare attended the meeting in distributor

Y in June, 2010 to reach a consensus on making the distribution channel simple enough

among itself, distributor and major drug store X as implementing MTA. It gave the

presentation about MTA implementation in front of distributor’s top and middle management

teams, explained how much the MTA was effective in order to acquire distributor’s

understanding, and suggested the distributor’s warehouse better be involved as well. The

implementation of MTA started from October, 2010 with a few kinds of products. The idea

is that when it comes to Omron Healthcare’s products, distributor Y that has transactions

with many drug stores only sells the products to drug store X. And when Omron

Healthcare wants its products to be sold in drug store X, the products are only delivered to

distributor Y. Thus, Omron Healthcare, the distributor, and the retailer have one-to-one

relationship. Generally, the distributor responses to several retailers, and it tends to

inevitably make a large amount of inventory in order to constantly meet the demand of the

retailer customer (drug stores). So far, this one-to-one relationship is only implemented

among Omron Healthcare, distributor Y and drug store X (retailer) on a trial basis, but it

seems to benefit every party.

The point is that the smooth demand information through the simple distribution channel

makes the demand of downstream more visible for Omron Healthcare, and alleviates the

distributor and the retailer’s concern about excessive inventory and inventory shortage.

Omron Healthcare expects to implement the MTA to more products and more distributors than

now because the MTA has made it achieve a significant performance on total inventory

reduction.

Interaction with the distributor

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The distributor took Omron Healthcare’s suggestion about the MTA

implementation, shared information over the IT system and made some basic rules with

Omron Healthcare. For example, despite being the only distributor, it has the branches all

over the country and sometimes receives orders from seven or eight branches in one day. To

be responsive to massive orders every day, Omron Healthcare does daily delivery basically

from Osaka warehouse after the distributor confirms the orders. Two parties are running the

order-delivery circle every day except for the weekends, when there are no orders. As a

result, although the distributor has given a try only on some kinds of the products, the average

stock level of those products is already reduced to less than half the previous level, so far.

The distributor said it would be delighted to do the same for other products as much as

possible.

4. Results and Discussion

4.1 Results

Based on the case above, we can draw a few key points about the total inventory reduction

through a multi-stage observation. Omron Healthcare’s effort required collaboration (goal

sharing, mutual understanding) and interaction (IT system implementation, meetings) with

departments inside and related organizations outside the firm.

First, we found that supply chain integration from upstream to downstream was a critical

point. To achieve a successful integration, goal sharing and mutual understanding/trust was

the primary requisites. Without actual goal sharing and mutual understanding ahead, the

departments would only care about their own thoughts and plans, and this would prevent the

total inventory reduction. The upstream production capability and mix-up of three

production systems were also the basic factors to support the successful integration.

When Omron Healthcare started to work on MTA, all managers from each department were

gathered at the very beginning and reached consensus of what they will be doing after

understanding each other’s situation. For the first time, production, sales, logistics and other

departments for operation shared a same goal which is to create a smooth product information

flow, prevent inventory shortage and improve the inventory turnover. Since involved

departments had a common objective, a series of activities was done smoothly; for example,

new IT systems were implemented into some departments, and people from production site

attended the meetings on sale’s site. We have to notice that if the production site had not

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accumulated production capability for the past twenty years, it would have been difficult for

Omron Healthcare to operate the new system. With production site’s high level of

production capability, Omron Healthcare mixes well the MTA (for regular order), the MTS

(for new products debut), and the MTO (for bulk order) to deal with the market demand.

With the well-done integration, all departments know where the products are and what product

is sold, and so forth what they have to manufacture at prompt. Production side does not only

have interest on manufacturing but also start to pay attention to the market movement. After

such changes, the inventory problem has been alleviated at the multi-stage.

With the suppliers and the distributor, Omron Healthcare did the same process it conducted

internally. Omron Healthcare explained MTA to the suppliers and distributors in order to

gain their understanding and have goal sharing among them. Then, Omron Healthcare

implemented the new system among those parties and had meetings with them constantly.

Second, Omron Healthcare had certain steps to integrate all parties. This was another

critical point. Regardless of the amount of effort Omron Healthcare put for building a

smooth information flow with suppliers or other firms, it would not be effective if the internal

side is not well organized. As a result, Omron Healthcare achieved success on inventory

turnover improvement and a big drop in inventory shortage rate in two years.

4.2 Discussion

In contrast to most of the existing studies based on large-scale survey, our research

give the readers a detailed insight of the total inventory reduction from a multi-stage

observation.

First of all, “goal sharing” is one of the main topics in management study (Lawrence

and Lorsch, 1967a; Bourgeois, 1980; Collins and Pollas, 2002), however, it played a less

important role in SCM. Gimenez and Ventura(2003, 2005) set the extent of integration as a

single variable to measure whether the goal is shared between departments or firms.

Kahn(1996) indicates that having collaboration (goal sharing and mutual understanding) done

first will contribute more to the firm’s performance. It means that goal sharing or vision

sharing or mutual understanding among involved parties is significantly more important than

only having formal interaction such as emails, phone calls, and meetings. Our finding is

consistent with those researches. Besides, we use a case study to provide readers with the

activities’ detail for goal sharing. This research possibly leads to a hypothesis and illustrate

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an effective guide line to practitioners as well.

Second, let us discuss the difference from previous studies about TPS. We observe

a wide range of integration beyond keiretsu3 , and suggest trust in upstream affects the activity

at downstream. In other words, the capability of upstream as flexible supply capability

facilitates the total inventory reduction. We notice that if Omron Healthcare had never

worked on TPS to improve its production capability, it would not have been able to understand

and implement the new system smoothly. Many literatures specially focus on TPS’s strong

production capability and close relationship with the suppliers. Omron Healthcare has

accumulated such production capability for years, and when it was time for to implementing

the MTA, it actually took advantage of TPS (named ONPS/DNPS) rather than taking the place

of it. Sale’s site in Omron Healthcare trusted the production site and knew that it had a high

level of production capability, which made parties in downstream easier to mix-up different

production systems. TPS studies address that upstream activity depends on demand

information from downstream (Holweg & Pil, 2004; Tomino, Park, Hong & Roh, 2009). Our

argument is that the capability of upstream to provide a flexible supply influences activities

(i.e. inventory management or order policy) in downstream.

Finally, observation of certain processes for integration is important. Tomino

(2012) discusses that TPS has adaptation capability to the market because it follows a stable

production plan on the one hand, and is able to make minor-change to meet customer needs on

the other hand. However, our research did not focus on the completed system but rather on a

system that was in the building processes. Omron Healthcare case is not the only form of

integration (figure. 2), but nevertheless, the case implies that in order to effectively deal with

the downstream, a firm should first integrate the production and sale sectors within. Our

contribution is to expand discussion by focusing on integration processes.

Figure. 2 Integration process

3 Keiretsu is a group of companies with close business relationship. It is the key element of

the auto mobile industry in Japan.

17

In conclusion, manufacturing firms nowadays respond to diverse and complex customer

needs on the one hand, and need to solve a plenty of problems such as lead-time improvement

and quality improvement on the other hand. Management team should realize that, without

flexible supply capability, the firm will be exhausted to deal with various issues at hand, even

though building competency is obviously a much harder task.

For the future research, multiple cases are needed to give a general implication.

Additionally, whether our finding can be applied to other industries is an intriguing topic as

well. Industry differences might give us a different wisdom.

Acknowledgement

We would like to dedicate our special appreciation to Omron Healthcare for the

detailed interviews and helpful advices. We also appreciate Consulting company B for

providing us incisive and constructive comments. Insightful and concrete comments from

Fujimoto,T., Takahashi, N., Kuwashima, K., and Park, Y. W. were very much helpful and we

are truly thankful for their support. In addition, we are very grateful for MMRC’s funding as

well.

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